The Economist Debate: Obama and Business
I was asked by the editor of The Economist to participate in an Oxford-style debate on the question, “Has President Obama Been Good for Business?” Included below are my Opening Statement, Rebuttal, and Closing Statement taking the position that the Obama administration has been good for business.
As America gears up for mid-term congressional elections, politicians and business leaders have been quick to criticise Barack Obama’s economic initiatives. His opponents have relentlessly attacked every legislative victory he has achieved as being “bad for business”—from his health plan to the automotive bail-out, the $853 billion stimulus bill and financial reform.
One senior congressional Republican called the president’s agenda “job-killing”. Another said he “was like a teenager with a credit card” when it came to federal spending. Ironically, cries that the administration is bad for business often come from the beneficiaries of Mr Obama’s bold moves to stabilise the collapsing economy he inherited.
To demonstrate that these criticisms are patently unfair, take an objective look at his record.
When he took office on January 21st 2009, Mr Obama inherited an economic disaster from his predecessor. Bank credit had virtually shut down, housing markets and prices were collapsing, and American automobile companies were struggling for survival. Millions of Americans were losing their homes and their jobs as massive lay-offs accelerated.
Mr Obama moved courageously to contain this mounting disaster, demonstrating the principled leadership required to restore the nation’s economic strength. Had he not moved so quickly to halt the tailspin, America would have experienced far greater economic calamity. His stimulus package, passed by Congress in only two months, kept millions of Americans from losing their jobs and put many more back to work. He extended the safety net to protect the unemployed from further harm. The Recovery Act has been highly successful, yielding $3 in private investment for every $1 of public spending.
In March 2009, Mr Obama faced the bankruptcies of General Motors and Chrysler, as millions of manufacturing jobs were at risk of disappearing. He made some of his finest moves in restructuring their ownership and appointing new management to restore two of America’s great institutions. His actions, including short-term relief with “cash for clunkers”, helped all three American automobile manufacturers get back to profitability.
The president has been most aggressively attacked by Republicans for his courage in reforming health care and financial services. His health-care package addressed long-standing, intractable problems such as ever-increasing health-care costs and 45m Americans without health insurance. The legislation provides long-run solutions, providing coverage for 35m more Americans and bending the cost curve downward.
Financial services reform was essential to restore trust in the financial community and avoid a repeat of the 2008 global financial meltdown that created the economic problems. The legislation reduces excess leverage among financial institutions that led many to the brink of bankruptcy, and clarifies the rules so that all financial services organisations compete on a level playing field.
In contrast to Mr Obama’s diligent efforts to solve these long-standing problems, his critics’ arguments against them are short-sighted. By mandating coverage for all employees, he has reinforced the American system of employee health care and vastly reduced free care and inappropriate treatment. The commitment in the legislation to prevention, wellness and efficiency improvements will ultimately bring health-care costs under control, thereby enabling business to be more competitive in global markets.
America’s greatest challenge is the structural change in the economy that left 14m people unemployed. Without the administration’s efforts, the situation would have been much worse with millions more out of work. America lost 216,000 jobs per month in 2008, while this past year it has gained 84,000 per month, excluding census hiring. The Small Business Jobs and Credit Act restores job growth in small businesses by creating a $30 billion fund that will leverage $300 billion in lending. It also provides 100% depreciation for capital investments. An estimated 500,000 jobs will be added as a result of this legislation.
As the economy has stabilised, Mr Obama has initiated multiple policies aimed at reigniting free-market growth. To spur business investment and unleash pent-up capital spending, companies can earn 100% tax write-offs up to the end of 2011, further spurring private-sector job creation. To stimulate innovation—America’s competitive edge—research and development tax credits will be increased and made permanent. The new products and ideas unleashed by these tax credits will create new jobs for years to come. The administration will also invest an additional $50 billion in government-funded infrastructure projects.
In his first two years Mr Obama had to deal with a highly recalcitrant Congress, with Republicans trying to block and undermine every initiative, and with Democrats trying to shift to a larger public sector with a heavily regulated private sector. Navigating that chasm has not been easy, but he has done it extremely skilfully.
This objective examination of Mr Obama’s efforts to rebuild the economy can only lead to the conclusion that he has been very good indeed for business.
Nicole Gelinas argues that “the most dangerous thing that he [Mr Obama] has done is to try to preserve a failed status quo at the expense of a healthy recovery” and thus failed to create a “safe and predictable environment for investment capital”. She does not make a logical case for her argument, nor does she offer reasonable alternatives.
President Obama’s actions were certainly not aimed at preserving the status quo. To the contrary, he acted swiftly to prevent complete collapse in housing, financial services, automobiles, health care, and state and local government. Her argument that permitting further disintegration in these vital sectors would yield an economic rebound and more predictable environment is neither reasonable nor rational.
Had the Obama administration not taken swift action on all fronts, confidence in the American economy would have collapsed, and today we would be in the second Great Depression. Letting all weak institutions fail, as she implies, would have led to precisely the “unpredictable chaos” that Ms Gelinas now fears.
Let’s look at the facts in each case:
Housing. Had Mr Obama not moved quickly to stabilise mortgage and housing markets, millions of people would have been forced out of their homes; for many, this would have meant declaring personal bankruptcy. It also would have led to a deeper collapse in housing sales and construction with many more jobs lost.
Working with the Federal Reserve to keep interest rates low and make liquidity available was an integral part of Mr Obama’s solution, not the problem that Ms Gelinas asserts. Since there is plenty of liquidity available in the system, her argument that housing investments squeeze out other investments is illogical. Nor is it reasonable for her to assert that business is buying “too dearly”; to the contrary, private-sector capital investment is far too low and needs to be stimulated.
Financial services reform. Dodd-Frank was required to restore trust in financial institutions. I disagree completely with Ms Gelinas that it exacerbates “too big to fail”. I do not know of a single financial institution that thinks this administration would step in and save it.
However, new authority granted to the treasury and the Federal Reserve was essential to prevent future meltdowns; this authority would have prevented Lehman Brothers’ bankruptcy, which triggered the 2008 meltdown. Her argument that granting discretion to top-level government officials is wrong does not hold water either. The alternative is endless regulations that constrain American financial institutions from funding private-sector growth and competing in global markets.
I agree that solutions are needed for Fannie Mae and Freddie Mac. However, Mr Obama was correct in putting financial-services reform first. Now he can turn his attention to focus on solutions for these federal institutions.
State and local government. Mr Obama’s $858 billion stimulus package included $217 billion for state and local governments. Had he not done so, millions of police and fire personnel, teachers, nurses and other public-sector employees would have lost their jobs. Schools, public hospitals, public safety and other vital services would have been shut down. Granted, states were overspending when Mr Obama took office, but that is no excuse for triggering the economic collapse of state and local governments.
Ms Gelinas’s proposal to cut state and local education funding is the most disturbing idea she presented. We desperately need better-educated workers to compete in a globalised world.
Infrastructure. Ms Gelinas is incorrect in arguing that Mr Obama did not fund infrastructure. The stimulus bill included $44 billion allotted for the Department of Transportation alone, which is being supplemented by an additional $50 billion dedicated to funding infrastructure.
Tax policy. The country cannot continue with enormous deficits triggered by the Bush administration’s tax cuts. Setting a 20% limit on capital gains and dividends, as treasury secretary Timothy Geithner has proposed, is quite reasonable. Investment will not be hampered any more than it was under the Clinton administration when the capital gains and dividend rate was at the same level that Mr Geithner has proposed. It is essential to restore the balance between tax receipts and government spending in order to build a solid economy with sustainable growth.
Rather than preserving the status quo, as Ms Gelinas asserts, Mr Obama’s aggressive actions have restored confidence in the American economy and provided a pathway for long-term economic growth. They have addressed long-standing problems such as health care, American competitiveness in automobiles and a declining infrastructure.
Mr Obama’s leadership prevented the total economic calamity we were heading for in 2008 and created a safer and more predictable environment for investment capital. Banks are lending again, jobs are increasing—albeit too slowly—and Mr Obama’s recent initiatives will accelerate private-sector investment and job creation. His efforts have created a sustainable financial future for all Americans, a vastly stronger business climate and steady increases in jobs.
Instead of constantly attacking Mr Obama’s actions, it is time to unite behind them to create sustainable growth and restore American competitiveness in global markets.
President Obama has approached his first term in two phases, both of which are good for business.
Phase I aimed to stabilise the economy and prevent businesses and entire industries from collapsing in the wake of the great recession Mr Obama inherited. That phase has been completed successfully. Had he taken the laissez-faire approach recommended by Nicole Gelinas, America would have faced another Great Depression, from which it would have taken many years to recover with great harm to business as well as individuals.
In Phase II, Mr Obama is focusing on building an economy of sustainable private-sector growth that creates millions of jobs, is innovative and technologically advanced, expands exports, and generates sufficient income to reduce the deficits of the past decade.
In Phase I, the president immediately addressed the crisis he inherited from his predecessor, George W. Bush. He implemented a series of short-term actions designed to prevent a total collapse of the American economy and restore it to a stable footing. He also tackled longer-term problems, such as health care, financial services reform, industrial competitiveness, eroding infrastructure, energy policy, and technology and innovation.
More than $100 billion of the stimulus package funded innovation and technology projects, such as renewable energy research, health care and transport, all of which will be crucial drivers of future growth. Mr Obama restored American automobile producers to health so they can focus on creating more innovative, fuel-efficient vehicles. The health-care bill contains billions of dollars for improved health and wellness and innovations in health-care delivery, which will lead to lower costs.
Contrary to Ms Gelinas’s opinions, Mr Obama did not bail out Wall Street; those actions were taken by Mr Bush. Working with the Federal Reserve, he stabilised business and financial markets by providing sufficient liquidity and low interest rates to restore lending and prevent further collapse in housing markets, while enabling financial institutions to become healthy and profitable once again.
This resulted in commercial banks repaying all their TARP funds plus a 14% return. Now Mr Obama is working with General Motors, Chrysler and AIG to repay their government loans as they too become profitable. These actions led to a 22% increase in the stockmarket in 2009, reflecting increased corporate profitability and renewed confidence in business.
To get the economy back on its feet, Mr Obama correctly prioritised passage of the $853 billion stimulus bill, which created and saved millions of jobs. From that early legislative experience, he recognised that Republicans would oppose every initiative. Consequently, he moved quickly to reform health care and financial services while he had large congressional majorities, working with business leaders to gain their input and support.
He recognised that the 2008 meltdown had destroyed trust in business and created an enormous gulf between Wall Street and Main Street. This required new rules and sounder oversight of financial institutions, leading to the passage of the Dodd-Frank bill. Mr Obama knew that major changes like these would incur opposition, but he was committed to solving these intractable problems, even at the expense of his popularity.
In recent weeks, he has demonstrated that he will use the next two years to create sustainable growth in the economy, expand exports, create jobs and reduce the deficits begun by his predecessor. In this second phase, he is replacing his entire economics team, which successfully stabilised the economy, with a new team that can create sustainable growth. Shortly he will appoint a CEO known for integrity, innovation and growth as his chief economic adviser. He also appointed a new budget chief, charged with cutting excess federal spending to reduce the deficit.
His Labor Day announcement to provide 100% depreciation on capital equipment purchases through 2011, increase R&D tax credits and make them permanent, and spend an additional $50 billion on infrastructure are aimed at helping businesses compete, innovate and create sustainable jobs. His new export council, chaired by the CEOs of Boeing and Xerox, will stimulate American manufacturing and reduce unfavourable trade balances.
In addition, he was successful in getting the Small Business bill passed by Congress, providing loans and jobs in this vital sector. Meanwhile, he continues to keep interest rates low and provide sufficient liquidity to support this expansion, while working with the Chinese to revalue their currency. These actions will increase America’s competitiveness and create millions of jobs while reducing unemployment rates.
In his first two years Mr Obama has demonstrated extraordinary leadership in making tough choices and taking swift action to restore confidence. These actions have been good for business, both long-term and short-term. By the end of his term, the business community and the American public will recognise just how effective he has been in stabilising the economy and restoring America’s growth and competitiveness.